1. C H A P T E R O N E Three women and a goose make a
marketplace. ITALIAN PROVERB Marketingandthe ConceptofPlanning
andStrategy Over the years marketers have been presented with a
series of philosophical approaches to marketing decision making.
One widely used approach is the marketing concept approach, which
directs the marketer to develop the product offering, and indeed
the entire marketing program, to meet the needs of the cus- tomer
base. A key element in this approach is the need for information
flow from the market to the decision maker. Another approach is the
systems approach, which instructs the marketer to view the product
not as an individual entity but as just one aspect of the customers
total need-satisfaction system. A third approach, the environmental
approach, portrays the marketing decision maker as the focal point
of numerous environments within which the firm operates and that
affect the suc- cess of the firms marketing program. These
environments frequently bear such labels as legal-political,
economic, competitive, consumer, market structure, social,
technological, and international. Indeed, these and other
philosophical approaches to marketing decision making are merely
descriptive frameworks that stress certain aspects of the firms
role vis--vis the strategic planning process. No matter what
approach a firm fol- lows, it needs a reference point for its
decisions that is provided by the strategy and the planning process
involved in designing the strategy. Thus, the strategic planning
process is the guiding force behind decision making, regardless of
the approach one adopts. This relationship between the strategic
planning process and approaches to marketing decision making is
depicted in Exhibit 1-1. Planning perspectives develop in response
to needs that arise internally or that impinge on the organization
from outside. During the 1950s and 1960s, growth was the dominant
fact of the economic environment, and the planning processes
developed during that time were typically geared to the discovery
and exploitation of entrepreneurial opportunities. Decentralized
planning was the order of the day. Top management focused on
reviewing major investment pro- posals and approving annual
operating budgets. Long-range corporate plans 2 1 1
2. were occasionally put together, but they were primarily
extrapolations and were rarely used for strategic decision making.
Planning perspectives changed in the 1970s. With the quadrupling of
energy costs and the emergence of competition from new quarters,
followed by a reces- sion and reports of an impending capital
crisis, companies found themselves sur- rounded by new needs.
Reflecting these new management needs and concerns, a process aimed
at more centralized control over resources soon pervaded planning
efforts. Sorting out winners and losers, setting priorities, and
conserving capital became the name of the game. A new era of
strategic planning dawned over cor- porate America. The value of
effective strategic planning is virtually unchallenged in todays
business world. A majority of the Fortune 1000 firms in the United
States, for instance, now have senior executives responsible for
spearheading strategic plan- ning efforts. Strategic planning
requires that company assets (i.e., resources) be managed to
maximize financial return through the selection of a viable
business in accor- dance with the changing environment. One very
important component of strate- gic planning is the establishment of
the product/market scope of a business. It is within this scope
that strategic planning becomes relevant for marketers.1 Thus,
CHAPTER 1 Marketing and the Concept of Planning and Strategy 3
EXHIBIT 1-1 Relationship between the Strategic Planning Process and
Approaches to Marketing Decision Making 2 Marketing and the Concept
of Planning and Strategy
3. as companies adopted and made progress in their strategic
planning capabilities, a new strategic role for marketing emerged.
In this strategic role, marketing con- centrates on the markets to
serve, the competition to be tackled, and the timing of market
entry/exit. CONCEPT OF PLANNING Throughout human history, people
have tried to achieve specific purposes, and in this effort some
sort of planning has always found a place. In modern times, the
former Soviet Union was the first nation to devise an economic plan
for growth and development. After World War II, national economic
planning became a pop- ular activity, particularly among developing
countries, with the goal of systematic and organized action
designed to achieve stated objectives within a given period. Among
market economies, France has gone the furthest in planning its
economic affairs. In the business world, Henri Fayol, the French
industrialist, is credited with the first successful attempts at
formal planning. Accomplishments attributed to planning can be
summarized as follows: 1. Planning leads to a better position, or
standing, for the organization. 2. Planning helps the organization
progress in ways that its management considers most suitable. 3.
Planning helps every manager think, decide, and act more
effectively and progress in the desired direction. 4. Planning
helps keep the organization flexible. 5. Planning stimulates a
cooperative, integrated, enthusiastic approach to organiza- tional
problems. 6. Planning indicates to management how to evaluate and
check up on progress toward planned objectives. 7. Planning leads
to socially and economically useful results. Planning in
corporations emerged as an important activity in the 1960s. Several
studies undertaken during that time showed that companies attached
significant importance to planning. A Conference Board survey of
420 firms, for example, revealed that 85 percent had formalized
corporate planning activity.2 A 1983 survey by Coopers &
Lybrand and Yankelovich, Skelly, and White confirmed the central
role played by the planning function and the planner in running
most large busi- nesses.3 Although the importance of planning had
been acknowledged for some time, the executives interviewed in 1983
indicated that planning was becoming more important and was
receiving greater attention. A 1991 study by McDonalds noted that
marketing planning is commonly practiced by companies of all sizes,
and there is wide agreement on the benefits to be gained from such
planning.4 A 1996 survey by the Association of Management
Consulting Firms found that busi- ness persons, academics, and
consultants expect business planning to be their most pressing
management issue as they prepare to enter the next century.5 Some
companies that use formal planning believe that it improves profits
and growth, finding it particularly useful in explicit objective
setting and in monitor- ing results.6 Certainly, the current
business climate is generating a new posture 4 PART 1 Introduction
Marketing and the Concept of Planning and Strategy 3
4. among executives, with the planning process being identified
by eight out of ten respondents as a key to implementing the chief
executive officers (CEO) chosen strategy.7 Today most companies
insist on some sort of planning exercise to meet the rapidly
changing environment. For many, however, the exercise is cathartic
rather than creative. Growth is an accepted expectation of a firm;
however, growth does not happen by itself. Growth must be carefully
planned: questions such as how much, when, in which areas, where to
grow, and who will be responsible for different tasks must be
answered. Unplanned growth will be haphazard and may fail to
provide desired levels of profit. Therefore, for a company to
realize orderly growth, to maintain a high level of operating
efficiency, and to achieve its goals fully, it must plan for the
future systematically. Products, markets, facilities, per- sonnel,
and financial resources must be evaluated and selected wisely.
Todays business environment is more complex than ever. In addition
to the keen competition that firms face from both domestic and
overseas companies, a variety of other concerns, including
environmental protection, employee welfare, consumerism, and
antitrust action, impinge on business moves. Thus, it is desirable
for a firm to be cautious in undertaking risks, which again calls
for a planned effort. Many firms pursue growth internally through
research and development. This route to growth is not only
time-consuming but also requires a heavy com- mitment of resources
with a high degree of risk. In such a context, planning is needed
to choose the right type of risk. Since World War II, technology
has had a major impact on markets and mar- keters. Presumably, the
trend of accelerating technological change will continue in the
future. The impact of technological innovations may be felt in any
industry or in any firm. Therefore, such changes need to be
anticipated as far in advance as possible in order for a firm to
take advantage of new opportunities and to avoid the harmful
consequences of not anticipating major new developments. Here
again, planning is significant. Finally, planning is required in
making a choice among the many equally attractive alternative
investment opportunities a firm may have. No firm can afford to
invest in each and every good opportunity. Planning, thus, is
essential in making the right selection. Planning for future action
has been called by many different names: long-range planning,
corporate planning, comprehensive planning, and formal planning.
Whatever its name, the reference is obviously to the future.
Planning is essentially a process directed toward making todays
decisions with tomorrow in mind and a means of preparing for future
decisions so that they may be made rapidly, economically, and with
as little disruption to the business as possible. Though there are
as many definitions of planning as there are writers on the
subject, the emphasis on the future is the common thread underlying
all plan- ning theory. In practice, however, different meanings are
attached to planning. A distinction is often made between a budget
(a yearly program of operations) and a long-range plan. Some people
consider planning as something done by CHAPTER 1 Marketing and the
Concept of Planning and Strategy 5 Definition of Planning 4
Marketing and the Concept of Planning and Strategy
5. staff specialists, whereas budgeting is seen to fall within
the purview of line managers. It is necessary for a company to be
clear about the nature and scope of the planning that it intends to
adopt. A definition of planning should then be based on what
planning is supposed to be in an organization. It is not necessary
for every company to engage in the same style of comprehensive
planning. The basis of all planning should be to design courses of
action to be pursued for achieving stated objectives such that
opportunities are seized and threats are guarded against, but the
exact planning posture must be custom-made (i.e., based on the
decision-making needs of the organization). Operations management,
which emphasizes the current programs of an orga- nization, and
planning, which essentially deals with the future, are two
intimately related activities. Operations management or budgeted
programs should emerge as the result of planning. In the outline of
a five-year plan, for example, years two through five may be
described in general terms, but the activities of the first year
should be budgeted and accompanied by detailed operational
programs. A distinction should also be made between planning and
forecasting. Forecasting considers future changes in areas of
importance to a company and tries to assess the impact of these
changes on company operations. Planning takes over from there to
set objectives and goals and develop strategy. Briefly, no
business, however small or poorly managed, can do without plan-
ning. Although planning per se may be nothing new for an
organization, the cur- rent emphasis on it is indeed different. No
longer just one of several important functions of the organization,
plannings new role demands linkage of various parts of an
organization into an integrated system. The emphasis has shifted
from planning as an aspect of the organization to planning as the
basis of all efforts and decisions, the building of an entire
organization toward the achievement of des- ignated objectives.
There is little doubt about the importance of planning. Planning
depart- ments are key in critiquing strategies, crystallizing
goals, setting priorities, and maintaining control;8 but to be
useful, planning should be done properly. Planning just for the
sake of it can be injurious; half-hearted planning can cause more
problems than it solves. In practice, however, many business
executives simply pay lip service to planning, partly because they
find it difficult to incor- porate planning into the
decision-making process and partly because they are uncertain how
to adopt it. If planning is to succeed, proper arrangements must be
made to put it into oper- ation. The Boston Consulting Group
suggests the following concerns for effective planning: There is
the matter of outlook, which can affect the degree to which
functional and professional viewpoints, versus corporate needs,
dominate the work of plan- ning. There is the question of the
extent of involvement for members of the manage- ment. Who should
participate, and to what extent? 6 PART 1 Introduction Requisites
for Successful Planning Marketing and the Concept of Planning and
Strategy 5
6. There is the problem of determining what part of the work of
planning should be accomplished through joint effort and how to
achieve effective collaboration among participants in the planning
process. There is the matter of incentive, of making planning an
appropriately empha- sized and rewarded kind of managerial work.
There is the question of how to provide staff coordination for
planning, which raises the issue of how a planning unit should be
used in the organization. And there is the role of the chief
executive in the planning process. What should it be?9 Though
planning is conceptually rather simple, implementing it is far from
easy. Successful planning requires a blend of many forces in
different areas, not the least of which are behavioral,
intellectual, structural, philosophical, and man- agerial.
Achieving the proper blend of these forces requires making
difficult deci- sions, as the Boston Consulting Group has
suggested. Although planning is indeed complex, successful planning
systems do have common fundamental characteristics despite
differing operational details. First, it is essential that the CEO
be completely supportive. Second, planning must be kept simple, in
agree- ment with the managerial style, and unencumbered by detailed
numbers and fancy equations. Third, planning is a shared
responsibility, and it would be wrong to assume that the president
or vice president of planning, staff specialists, or line managers
can do it single-handedly. Fourth, the managerial incentive system
should give due recognition to the fact that decisions made with
long-term impli- cations may not appear good in the short run.
Fifth, the goals of planning should be achievable without excessive
frustration and work load and with widespread understanding and
acceptance of the process. Sixth, overall flexibility should be
encouraged to accommodate changing conditions. There is no one best
time for initiating planning activities in an organization;
however, before developing a formal planning system, the
organization should be prepared to establish a strong planning
foundation. The CEO should be a central participant, spearheading
the planning job. A planning framework should be developed to match
the companys perspective and should be generally accepted by its
executives. A manual outlining the work flow, information links,
format of various documents, and schedules for completing various
activities should be prepared by the planner. Once these
foundations are completed, the company can initiate the planning
process anytime. Planning should not be put off until bad times
prevail; it is not just a cure for poor performance. Although
planning is probably the best way to avoid bad times, planning
efforts that are begun when operational performance is at an ebb
(i.e., at low or no profitability) will only make things worse,
since planning efforts tend initially to create an upheaval by
challenging the traditional patterns of deci- sion making. The
company facing the question of survival should concentrate on
alleviating the current crisis. Planning should evolve gradually.
It is wishful thinking to expect full-scale planning to be
instituted in a few weeks or months. Initial planning may be
CHAPTER 1 Marketing and the Concept of Planning and Strategy 7
Initiating Planning Activities 6 Marketing and the Concept of
Planning and Strategy
7. formalized in one or more functional areas; then, as
experience is gained, a com- pany-wide planning system may be
designed. IBM, a pioneer in formalized plan- ning, followed this
pattern. First, financial planning and product planning were
attempted in the post-World War II period. Gradual changes toward
increased formality were made over the years. In the later half of
1960s, increased attention was given to planning contents, and a
compatible network of planning data sys- tems was initiated.
Corporate-wide planning, which was introduced in the 1970s, forms
the backbone of IBMs current global planning endeavors. Beginning
in 1986, the company made several changes in its planning
perspectives in response to the contingencies created by
deteriorating performance. In the 1990s, planning at IBM became
more centralized to fully seek resource control and coordination.
In an analysis of three different philosophies of planning, Ackoff
established the labels satisfying, optimizing, and adaptivizing.10
Planning on the basis of the satisfying philosophy aims at easily
achievable goals and molds planning efforts accordingly. This type
of planning requires setting objectives and goals that are high
enough but not as high as possible. The satisfying planner,
therefore, devises only one feasible and acceptable way of
achieving goals, which may not necessarily be the best possible
way. Under a satisfying philosophy, confrontations that might be
caused by conflicts in programs are diffused through politicking,
underplaying change, and accepting a fall in performance as
unavoidable. The philosophy of optimizing planning has its
foundation in operations research. The optimizing planner seeks to
model various aspects of the organiza- tion and define them as
objective functions. Efforts are then directed so that an objective
function is maximized (or minimized), subject to the constraints
imposed by management or forced by the environment. For example, an
objective may be to obtain the highest feasible market share;
planning then amounts to searching for different variables that
affect market share: price elasticity, plant capacity, competitive
behavior, the products stage in the life cycle, and so on. The
effect of each variable is reduced to constraints on the market
share. Then an analysis is undertaken to find out the optimum
market share to target. Unlike the satisfying planner, the
optimizer endeavors, with the use of math- ematical models, to find
the best available course to realize objectives and goals. The
success of an optimizing planner depends on how completely and
accurately the model depicts the underlying situation and how well
the planner can figure out solutions from the model once it has
been built. The philosophy of adaptivizing planning is an
innovative approach not yet popular in practice. To understand the
nature of this type of planning, let us compare it to optimizing
planning. In optimization, the significant variables and their
effects are taken for granted. Given these, an effort is made to
achieve the optimal result. With an adaptivizing approach, on the
other hand, planning may be undertaken to produce changes in the
underlying relationships them- selves and thereby create a desired
future. Underlying relationships refer to an organizations internal
and external environment and the dynamics of the values of the
actors in these environments (i.e., how values relate to needs and
8 PART 1 Introduction Philosophies of Planning Marketing and the
Concept of Planning and Strategy 7
8. to the satisfaction of needs, how changes in needs produce
changes in values, and how changes in needs are produced). CONCEPT
OF STRATEGY Strategy in a firm is the pattern of major objectives,
purposes, or goals and essential policies and plans for achieving
those goals, stated in such a way as to define what business the
company is in or is to be in and the kind of company it is or is to
be. Any organization needs strategy (a) when resources are finite,
(b) when there is uncertainty about competitive strengths and
behavior, (c) when commitment of resources is irreversible, (d)
when decisions must be coordinated between far-flung places and
over time, and (e) when there is uncertainty about control of the
initiative. An explicit statement of strategy is the key to success
in a changing business environment. Strategy provides a unified
sense of direction to which all members of the organization can
relate. Where there is no clear concept of strategy, deci- sions
rest on either subjective or intuitive assessment and are made
without regard to other decisions. Such decisions become
increasingly unreliable as the pace of change accelerates or
decelerates rapidly. Without a strategy, an organi- zation is like
a ship without a rudder going around in circles. Strategy is
concerned with the deployment of potential for results and the
development of a reaction capability to adapt to environmental
changes. Quite naturally, we find that there are hierarchies of
strategies: corporate strategy and business strategy. At the
corporate level, strategy is mainly concerned with defin- ing the
set of businesses that should form the companys overall profile.
Corporate strategy seeks to unify all the business lines of a
company and point them toward an overall goal. At the business
level, strategy focuses on defining the manner of competition in a
given industry or product/market segment. A business strategy
usually covers a plan for a single product or a group of related
products. Today, most strategic action takes place at the business
unit level, where sophisticated tools and techniques permit the
analysis of a business; the forecast- ing of such variables as
market growth, pricing, and the impact of government regulation;
and the establishment of a plan that can sidestep threats in an
erratic environment from competitors, economic cycles, and social,
political, and con- sumer changes. Each functional area of a
business (e.g., marketing) makes its own unique contribution to
strategy formulation at different levels. In many firms, the mar-
keting function represents the greatest degree of contact with the
external envi- ronment, the environment least controllable by the
firm. In such firms, marketing plays a pivotal role in strategy
development. In its strategic role, marketing consists of
establishing a match between the firm and its environment. It seeks
solutions to problems of deciding (a) what business the firm is in
and what kinds of business it may enter in the future and (b) how
the CHAPTER 1 Marketing and the Concept of Planning and Strategy 9
8 Marketing and the Concept of Planning and Strategy
9. chosen field(s) of endeavor may be successfully run in a
competitive environment by pursuing product, price, promotion, and
distribution perspectives to serve target markets. In the context
of strategy formulation, marketing has two dimen- sions: present
and future. The present dimension deals with the existing relation-
ships of the firm to its environments. The future dimension
encompasses intended future relationships (in the form of a set of
objectives) and the action programs nec- essary to reach those
objectives. The following example illustrates the point. McDonalds,
the hamburger chain, has among its corporate objectives the goal of
increasing the productivity of its operating units. Given the high
propor- tion of costs in fixed facilities, McDonalds decided to
increase facility utilization during off-peak hours, particularly
during the morning hours. The program developed to accomplish these
goals, the Egg McMuffin, was followed by a breakfast menu
consistent with the limited product line strategy of McDonalds
regular fare. In this example, the corporate goal of increased
productivity led to the marketing perspective of breakfast fare
(intended relationship), which was built over favorable customer
attitudes toward the chain (existing relationship). Similarly, a
new marketing strategy in the form of McDonalds Chicken Fajita
(intended relationship) was pursued over the companys ability to
serve food fast (existing relationship) to meet the corporate goal
of growth. Generally, organizations have identifiable existing
strategic perspectives; however, not many organizations have an
explicit strategy for the intended future. The absence of an
explicit strategy is frequently the result of a lack of top
management involvement and commitment required for the development
of proper perspectives of the future within the scope of current
corporate activities. Marketing provides the core element for
future relationships between the firm and its environment. It
specifies inputs for defining objectives and helps for- mulate
plans to achieve them. CONCEPT OF STRATEGIC PLANNING Strategy
specifies direction. Its intent is to influence the behavior of
competitors and the evolution of the market to the advantage of the
strategist. It seeks to change the competitive environment. Thus, a
strategy statement includes a description of the new competitive
equilibrium to be created, the cause-and-effect relationships that
will bring it about, and the logic to support the course of action.
Planning articulates the means of implementing strategy. A
strategic plan speci- fies the sequence and the timing of steps
that will alter competitive relationships. The strategy and the
strategic plan are quite different things. The strategy may be
brilliant in content and logic; but the sequence and timing of the
plan, inadequate. The plan may be the laudable implementation of a
worthless strategy. Put together, strategic planning concerns the
relationship of an organization to its environment. Conceptually,
the organization monitors its environment, incorpo- rates the
effects of environmental changes into corporate decision making,
and formulates new strategies. Exhibit 1-2 provides a scorecard to
evaluate the viabil- ity of a companys strategic planning effort.
10 PART 1 Introduction Marketing and the Concept of Planning and
Strategy 9
10. Companies that do well in strategic planning define their
goals clearly and develop rational plans to implement them. In
addition, they take the following steps to make their strategic
planning effective: They shape the company into logical business
units that can identify markets, customers, competitors, and the
external threats to their business. These business units are
managed semi-autonomously by executives who operate under corpo-
rate financial guidelines and with an understanding of the units
assigned role in the corporate plan. They demonstrate a willingness
at the corporate level to compensate line man- agers on long-term
achievements, not just the yearly bottom line; to fund research
programs that could give the unit a long-term competitive edge; and
to offer the unit the type of planning support that provides data
on key issues and encour- ages and teaches sophisticated planning
techniques. They develop at the corporate level the capacity to
evaluate and balance compet- ing requests from business units for
corporate funds, based on the degree of risk and reward. They match
shorter-term business unit goals to a long-term concept of the com-
panys evolution over the next 15 to 20 years. Exclusively the CEOs
function, effectiveness in matching business unit goals to the
firms evolution may be tested by the board of directors. The
importance of strategic planning for a company may be illustrated
by the example of the Mead Corporation. The Mead Corporation is
basically in the forest products business. More than 75 percent of
its earnings are derived from trees, CHAPTER 1 Marketing and the
Concept of Planning and Strategy 11 Strategic Planning: An Example
EXHIBIT 1-2 A Strategic Planning Scorecard Is our planning really
strategic? Do we try to anticipate change or only project from the
past? Do our plans leave room to explore strategic alternatives? Or
do they confine us to conventional thinking? Do we have time and
incentive to investigate truly important things? Or do we spend
excessive planning time on trivia? Have we ever seriously evaluated
a new approach to an old market? Or are we locked into the status
quo? Do our plans critically document and examine strategic
assumptions? Or do we not really understand the implications of the
plans we review? Do we consistently make an attempt to examine
consumer, competitor, and distribu- tor responses to our programs?
Or do we assume the changes will not affect the relationships we
have seen in the past? Source: Thomas P. Justad and Ted J.
Mitchell, Creative Market Planning in a Partisan Environment,
Business Horizons (MarchApril 1982): 64, copyright 1982 by the
Foundation for the School of Business at Indiana University.
Reprinted by permission. 10 Marketing and the Concept of Planning
and Strategy
11. from the manufacture of pulp and paper, to the conversion
of paperboard to bev- erage carriers, to the distribution of paper
supplies to schools. Mead also has an array of businesses outside
the forest products industry and is developing new technologies and
businesses for its future, primarily in storing, retrieving, and
reproducing data electronically. In short, Mead is a company
growing in the industries in which it started as well as expanding
into areas that fit the capabili- ties and style of its management.
Although Mead was founded in 1846, it did not begin to grow rapidly
until around 1955, reaching the $1 billion mark in sales in the
late 1960s. Unfortunately, its competitive position did not keep
pace with this expansion. In 1972 the com- pany ranked 12th among
15 forest products companies. Clearly, if Mead was to become a
leading company, its philosophy, its management style and focus,
and its sense of urgencyits whole corporate culturehad to change.
The vehicle for that change was the companys strategic planning
process. When top managers began to discuss ways to improve Mead,
they quickly arrived at the key question: What kind of performing
company should Mead be? They decided that Mead should be in the top
quartile of those companies with which it was normally compared.
Articulation of such a clear and simple objec- tive provided all
levels of management with a sense of direction and with a frame of
reference within which to make and test their own decisions. This
objective was translated into specific long-term financial goals.
In 1972 a rigorous assessment of Meads businesses was made. The
results of this assessment were not comfortingseveral small units
were in very weak com- petitive positions. They were substantial
users of cash that was needed elsewhere in businesses where Mead
had opportunities for significant growth. Meads board decided that
by 1977 the company should get out of certain businesses, even
though some of those high cash users were profitable. Setting goals
and assessing Meads mix of businesses were only the first steps.
Strategic planning had to become a way of life if the corporate
culture was going to be changed. Five major changes were
instituted. First, the corporate goals were articulated throughout
the companyover and over and over again. Second, the management
system was restructured. This restructuring was much easier said
than done. In Meads pulp and paper businesses, the culture expected
top management to be heavily involved in the day-to-day operation
of major facilities and intimately involved in major construction
projects, a style that had served the company well when it was
simply a producer of paper. By the early 1970s, however, Mead was
simply too large and too diverse for such a hands-on approach. The
nonpulp and paper businesses, which were managed with a variety of
styles, needed to be integrated into a more balanced manage- ment
system. Therefore, it was essential for top management to stay out
of day-to-day operations. This decision allowed division managers
to become stronger and to develop a greater sense of personal
responsibility for their opera- tions. By staying away from major
construction projects, top managers allowed on-site managers to
complete under budget and ahead of schedule the largest and most
complex programs in the companys history. 12 PART 1 Introduction
Marketing and the Concept of Planning and Strategy 11
12. Third, simultaneously with the restructuring of its
management system, sem- inars were used to teach strategic planning
concepts and techniques. These sem- inars, sometimes week-long
sessions, were held off the premises with groups of 5 to 20 people
at a time. Eventually, the top managers in the company became
graduates of Meads approach to strategic planning. Fourth, specific
and distinctly different goals were developed and agreed upon for
each of Meads two dozen or so business units. Whereas the earlier
Mead culture had charged each operation to grow in any way it
could, each busi- ness unit now had to achieve a leadership
position in its markets or, if a leader- ship position was not
practical, to generate cash. Finally, the board began to fund
agreed-upon strategies instead of approving capital projects
piecemeal or yielding to emotional pleas from favorite managers.
The first phase of change was the easiest to accomplish. Between
1973 and 1976, Mead disposed of 11 units that offered neither
growth nor significant cash flow. Over $100 million was obtained
from these divestitures, and that money was promptly reinvested in
Meads stronger businesses. As a result, Meads mix of businesses
showed substantial improvement by 1977. In fact, Mead achieved its
portfolio goals one year ahead of schedule. For the remaining
businesses, developing better strategies and obtaining better
operating performance were much harder to achieve. After all, on a
rela- tive basis, the company was performing well. With the
exception of 1975, 1984, 1989, and 1994, the years from 1973 to
1997 set all-time records for performance. The evolution of Meads
strategic planning system and the role it played in helping the
good businesses of the company improve their relative perfor- mance
are public knowledge. The financial results speak for themselves.
In spite of the divestitures of businesses with sales of over $500
million, Meads sales grew at a compound rate of 9 percent from 1973
to reach $5.1 billion in 1997. In addition, by the end of 1993,
Meads return on total capital (ROTC) reached 11.2 percent. More
important, among 15 forest products companies with which Mead is
normally compared, it had moved from twelfth place in 1972 to
second place in 1983, a position it continued to maintain in 1994.
These were the results of using a strategic planning system as the
vehicle for improv- ing financial performance. During the period
from 1988 to 1993, Mead took additional measures to increase its
focus in two areas: (a) its coated paper and board business and (b)
its value-added, less capital-intensive businesses (the
distribution and conversion of paper and related supplies and
electronic publishing). Today Mead is a well-man- aged, highly
focused, aggressive company. It is well positioned to be exception-
ally successful in the rest of 1990s, and beyond. Many forces
affected the way strategic planning developed in the 1970s and
early 1980s. These forces included slower growth worldwide, intense
global competition, burgeoning automation, obsolescence due to
technological change, deregulation, an explosion in information
availability, more rapid shifts in raw material prices, chaotic
money markets, and major changes in macroeconomic CHAPTER 1
Marketing and the Concept of Planning and Strategy 13 Strategic
Planning: Emerging Perspectives 12 Marketing and the Concept of
Planning and Strategy
13. and sociopolitical systems. As a result, destabilization
and fluidity have become the norm in world business. Today there
are many, many strategic alternatives for all types of industries.
Firms are constantly coming up with new ways of making products and
getting them to market. Comfortable positions in industry after
industry (e.g., in bank- ing, telecommunications, airlines,
automobiles) are disappearing, and barriers to entry are much more
difficult to maintain. Markets are open, and new competi- tors are
coming from unexpected directions. To steadily prosper in such an
environment, companies need new strategic planning perspectives.
First, top management must assume a more explicit role in strategic
planning, dedicating a large amount of time to deciding how things
ought to be instead of listening to analyses of how they are.
Second, strategic planning must become an exercise in creativity
instead of an exercise in forecast- ing. Third, strategic planning
processes and tools that assume that the future will be similar to
the past must be replaced by a mindset obsessed with being first to
recognize change and turn it into competitive advantage. Fourth,
the role of the planner must change from being a purveyor of
incrementalism to that of a cru- sader for action. Finally,
strategic planning must be restored to the core of line management
responsibilities. These perspectives can be described along six
action-oriented dimensions: managing a business for competitive
advantage, viewing change as an oppor- tunity, managing through
people, shaping the strategically managed organiza- tion, managing
for focus and flexibility, and managing fit across all functions.
Considering these dimensions can make strategic planning more
relevant and effective. Managing for Competitive Advantage.
Organizations in a market economy are concerned with delivering a
service or product in the most profitable way. The key to
profitability is to achieve a sustainable competitive advantage
based on superior performance relative to the competition. Superior
performance requires doing three things better than the
competition. First, the firm must clearly desig- nate the
product/market, based on marketplace realities and a true
understand- ing of its strengths and weaknesses. Second, it must
design a winning business system or structure that enables the
company to outperform competitors in pro- ducing and delivering the
product or service. Third, management must do a better job of
managing the overall business system, by managing not only rela-
tionships within the corporation but also critical external
relationships with sup- pliers, customers, and competitors.11 In
turn, the notion of white-space opportunities is proving especially
com- pelling for highly decentralized companies such as
Hewlett-Packard Co. HP Chairman Lewis E. Platt now believes his
most important role in strategy formu- lation is to build bridges
among the companys various operations. I dont create business
strategies, argues Platt. My role is to encourage discussion of the
white spaces, the overlap and gap among business strategies, the
important areas that are not addressed by the strategies of
individual HP businesses.12 14 PART 1 Introduction Marketing and
the Concept of Planning and Strategy 13
14. As an example, Hewlett-Packard Co. brings its customers and
suppliers together with the general managers of its many business
units in strategy sessions aimed at creating new market
opportunities. In each case, HP defines a business ecosystem, the
framework for its managers to explore and analyze. In an ecosys-
tem, companies sometimes compete and often cooperate to come up
with inno- vations, create new products, and serve customers. Most
of the business managers are so busy minding their current
businesses that is is hard to step out and see threats or
opportunities. But by looking at the entire ecosystem, it pro-
vides a broad perspective to them. It gets people out of their
boxes. A session on the ecosystem for the automotive industry saw
HP assembling managers from divisions that make service-bay
diagnostic systems for Ford Motor Co., workstations in auto
manufacturing plants, and electronic compo- nents for cars. The
company also invited customers and suppliers. What could all these
divisions do together to create new value for the industry? Many of
the opportunities came right out of the mouth of customers.
Possibilities included creating smart highway systems or building
integrated systems that would col- lect service problems and
immediately feed them back to Detroit. It changes the vision of the
business future and managers start thinking about how they can get
increased value from all the pieces of the company. By inviting
such a broad range of people to the strategy table, HP gained
viewpoints that would normally not be heard. Yet those opinions are
critical to creating future products and markets.12 Viewing Change
as an Opportunity. A new culture should be created within the
organization such that managers look to change as an opportunity
and adapt their business system to continuously emerging
conditions. In other words, change should not be viewed as a
problem but as a source of opportunity, pro- viding the potential
for creativity and innovation. Managing through People. Managements
first task is to create a vision of the organization that includes
(a) where the organization should be going, again based on a clear
examination of the companys strengths and weaknesses; (b) what
markets it should compete in; (c) how it will compete; and (d)
major action programs required. The next task is to convert vision
to realityto develop the capabilities of the organization, to
expedite change and remove obstacles, and to shape the environment.
Central to both the establishment and execution of a corporate
vision is the effective recruitment, development, and deployment of
human resources. In the end, management is measured by the skill
and sensi- tivity with which it manages and develops people, for it
is only through the qual- ity of their people that organizations
can change effectively.13 Electronic Data Systems Corp., which
manages large-scale data centers, has opened its strategic-planning
process to a broad range of players. In 1992, EDS launched a major
strategy initiative that involved 2,500 of its 55,000 employees.
The company picked a core group of 150 staffers from around the
world for the yearlong assignment. The group ranged from a
26-year-old systems engineer who had been with EDS for two years to
a sixty-something corporate vice-president CHAPTER 1 Marketing and
the Concept of Planning and Strategy 15 14 Marketing and the
Concept of Planning and Strategy
15. with a quarter of a century of EDS experience. The staffers
identified potential discontinuities that could threaten or pose
opportunities for EDS. They isolated the companys core
competencieswhat it does best and how that differentiates it from
the competition. And they crafted a strategic intenta point of view
about its future. As has been said, We discovered that in order for
us to make information technology valuable to people, we had to be
able to go into a com- pany and offer consulting to provide more
complete solutions, and we couldnt do that without building a
business strategy.13 So EDS began to create a man-
agement-consulting practice, acquiring A.T. Kearney Inc. for $600
million. Similar approaches have been used by a wide range of
companies, including Marriott Hotels and Helene Curtis Industries.
Shaping the Strategically Managed Organization. Management should
work toward developing an innovative, self-renewing organization
that the future will demand. Organizational change depends on such
factors as structure, strategy, systems, style, skills, staff, and
shared values. Organizations that take an externally focused,
forward-looking approach to the design of these factors have a much
better chance of self-renewal than those whose perspective is
predomi- nantly internal and historical. Managing for Focus and
Flexibility. Today, strategic planning should be viewed differently
than it was viewed in the past. A five-year plan, updated annually,
should be replaced by an ongoing concern for the direction the
organi- zation is taking. Many scholars describe an ongoing concern
for the direction of the firm, that is, concern with what a company
must do to become smart, tar- geted, and nimble enough to prosper
in an era of constant change, as strategic thinking.14 The key
words in this pursuit are focus and flexibility. Focus means
figuring out and building on what the company does best. It
involves identifying the evolving needs of customers, then
developing the key skillsoften called the core competenciesmaking
sure that everyone in the com- pany understands them. Flexibility
means sketching rough scenarios of the future (i.e., bands of
possibilities) and being ready to pounce on opportunities as they
arise. The point may be illustrated with reference to Sears. From
1985 to 1994, about $163 billion of stock market value was created
in the retail industry. Some 25 companies were responsible for
creating 85% of that wealth, and many of them did it with business
designs that featured stores outside shopping malls, with low
prices, quality merchandise, and broad selection. While Wal-Mart
Stores Inc. generated $42 billion and Home Depot Inc. added $20
billion in value, Searss retail operations captured less that $1
billion in that 10-year period. How did it happen? Like so many
American business icons, Sears lost sight of its customers. They
did not know whom they wanted to serve. That was a huge hole in the
com- panys strategy. They were also not clear on what basis they
thought they could win against the competition. A major strategy
overhaul led to the disposal of nonretail assets and a renewed
focus on Searss core business. The company renovated dowdy stores,
upgraded womens apparel, and launched a new ad campaign to engineer
a 16 PART 1 Introduction Marketing and the Concept of Planning and
Strategy 15
16. major turnaround at the department-store giant. One of the
things that got the company in trouble was its lack of focus on the
customer. Extensive customer research discovered high levels of
brand loyalty to Searss hardware lines. The research also suggested
that by segmenting the do-it-yourself market and focus- ing on home
projects with a low degree of complexity, say, papering a bathroom
or installing a dimmer switch, Sears could avoid a major
competitive collision with Home Depot and other home-improvement
giants. Customers, the Sears research showed, desired convenience
more than breadth of category in such hardware stores. After
successfully testing the concept of hardware outlets, the company
is now making a billion-dollar capital bet that Sears can gain
growth in this new market. It hopes to have 1,000 freestanding,
20,000-square-foot hardware stores built in five years, with 200 of
them running by 1998, at a cost of $1.25 million per outlet.15
Managing Fit Across All Functions. Different functions or
activities must reinforce each other for a successful strategy. A
productive sales force, for exam- ple, confers a greater advantage
when the companys product embodies premium technology and its
marketing approach emphasizes customer assistance and sup- port. A
production line with high levels of model variety is more valuable
when combined with an inventory and order-processing system that
minimizes the need for stocking finished goods, a sales process
equipped to explain and encour- age customization, and an
advertising theme that stresses the benefits of product variations
that meet a customers special needs. Such complementaries are per-
vasive in strategy. STRATEGIC BUSINESS UNITS (SBUS) Frequent
reference has been made in this chapter to the business unit, a
unit com- prising one or more products having a common market base
whose manager has complete responsibility for integrating all
functions into a strategy against an identifiable competitor.
Usually referred to as a strategic business unit (SBU), business
units have also been called strategy centers, strategic planning
units, or independent business units. The philosophy behind the SBU
concept has been described this way: The diversified firm should be
managed as a portfolio of businesses, with each busi- ness unit
serving a clearly defined product-market segment with a clearly
defined strategy. Each business unit in the portfolio should
develop a strategy tailored to its capa- bilities and competitive
needs, but consistent with the overall corporate capabilities and
needs. The total portfolio of businesses should be managed by
allocating capital and man- agerial resources to serve the
interests of the firm as a wholeto achieve balanced growth in
sales, earnings, and assets mix at an acceptable and controlled
level of risk. In essence, the portfolio should be designed and
managed to achieve an overall cor- porate strategy.16 CHAPTER 1
Marketing and the Concept of Planning and Strategy 17 16 Marketing
and the Concept of Planning and Strategy
17. Since formal strategic planning began to make inroads in
corporations in the 1970s, a variety of new concepts have been
developed for identifying a corpora- tions opportunities and for
speeding up the process of strategy development. These newer
concepts create problems of internal organization. In a dynamic
economy, all functions of a corporation (e.g., research and
development, finance, and marketing) are related. Optimizing
certain functions instead of the company as a whole is far from
adequate for achieving superior corporate performance. Such an
organizational perspective leaves only the CEO in a position to
think in terms of the corporation as a whole. Large corporations
have tried many different structural designs to broaden the scope
of the CEO in dealing with complexities. One such design is the
profit center concept. Unfortunately, the profit center con- cept
emphasizes short-term consequences; also, its emphasis is on
optimizing the profit center instead of the corporation as a whole.
The SBU concept was developed to overcome the difficulties posed by
the profit center type of organization. Thus, the first step in
integrating product/market strategies is to identify the firms
SBUs. This amounts to identifying natural busi- nesses in which the
corporation is involved. SBUs are not necessarily synonymous with
existing divisions or profit centers. An SBU is composed of a
product or prod- uct lines having identifiable independence from
other products or product lines in terms of competition, prices,
substitutability of product, style/quality, and impact of product
withdrawal. It is around this configuration of products that a
business strat- egy should be designed. In todays organizations,
this strategy may encompass products found in more than one
division. By the same token, some managers may find themselves
managing two or more natural businesses. This does not necessar-
ily mean that divisional boundaries need to be redefined; an SBU
can often overlap divisions, and a division can include more than
one SBU. SBUs may be created by applying a set of criteria
consisting of price, com- petitors, customer groups, and shared
experience. To the extent that changes in a products price entail a
review of the pricing policy of other products may imply that these
products have a natural alliance. If various products/markets of a
com- pany share the same group of competitors, they may be
amalgamated into an SBU for the purpose of strategic planning.
Likewise, products/markets sharing a common set of customers belong
together. Finally, products/markets in different parts of the
company having common research and development, manufacturing, and
marketing components may be included in the same SBU. For purposes
of illustration, consider the case of a large, diversified company,
one division of which manufactures car radios. The following
possibilities exist: the car radio division, as it stands, may
represent a viable SBU; alternatively, luxury car radios with
automatic tuning may constitute an SBU different from the SBU for
standard models; or other areas of the company, such as the
television division, may be combined with all or part of the car
radio division to create an SBU. Overall, an SBU should be
established at a level where it can rather freely address (a) all
key segments of the customer group having similar objectives; (b)
all key functions of the corporation so that it can deploy whatever
functional expertise is needed to establish positive
differentiation from the competition in 18 PART 1 Introduction
Identification of Strategic Business Units Marketing and the
Concept of Planning and Strategy 17
18. the eyes of the customer; and (c) all key aspects of the
competition so that the cor- poration can seize the advantage when
opportunity presents itself and, con- versely, so that competitors
will not be able to catch the corporation off-balance by exploiting
unsuspected sources of strength. A conceptual question becomes
relevant in identifying SBUs: How much aggregation is desirable?
Higher levels of aggregation produce a relatively smaller and more
manageable number of SBUs. Besides, the existing management infor-
mation system may not need to be modified since a higher level of
aggregation yields SBUs of the size and scope of present divisions
or product groups. However, higher levels of aggregation at the SBU
level permit only general notions of strat- egy that may lack
relevance for promoting action at the operating level. For exam-
ple, an SBU for medical care is probably too broad. It could
embrace equipment, service, hospitals, education, self-discipline,
and even social welfare. On the other hand, lower levels of
aggregation make SBUs identical to product/market segments that may
lack strategic autonomy. An SBU for farm tractor engines would be
ineffective because it is at too low a level in the orga- nization
to (a) consider product applications and customer groups other than
farmers or (b) cope with new competitors who might enter the farm
tractor market at almost any time with a totally different product
set of boundary con- ditions. Further, at such a low organizational
level, one SBU may compete with another, thereby shifting to higher
levels of management the strategic issue of which SBU should
formulate what strategy. The optimum level of aggregation, one that
is neither too broad nor too narrow, can be determined by applying
the criteria discussed above, then further refining it by using
managerial judgment. Briefly stated, an SBU must look and act like
a freestanding business, satisfying the following conditions: 1.
Have a unique business mission, independent of other SBUs. 2. Have
a clearly definable set of competitors. 3. Be able to carry out
integrative planning relatively independently of other SBUs. 4. Be
able to manage resources in other areas. 5. Be large enough to
justify senior management attention but small enough to serve as a
useful focus for resource allocation. The definition of an SBU
always contains gray areas that may lead to dispute. It is helpful,
therefore, to review the creation of an SBU, halfway into the
strategy development process, by raising the following questions:
Are customers wants well defined and understood by the industry and
is the market segmented so that differences in these wants are
treated differently? Is the business unit equipped to respond
functionally to the basic wants and needs of customers in the
defined segments? Do competitors have different sets of operating
conditions that could give them an unfair advantage over the
business unit in question? If the answers give reason to doubt the
SBUs ability to compete in the market, it is better to redefine the
SBU with a view to increasing its strategic free- dom in meeting
customer needs and competitive threats. CHAPTER 1 Marketing and the
Concept of Planning and Strategy 19 18 Marketing and the Concept of
Planning and Strategy
19. The SBU concept may be illustrated with an example from
Procter & Gamble.17 For more than 50 years the companys various
brands were pitted against each other. The Camay soap manager
competed against the Ivory soap manager as fiercely as if each were
in different companies. The brand manage- ment system that grew out
of this notion has been used by almost every consumer-products
company. In the fall of 1987, however, Procter & Gamble
reorganized according to the SBU concept (what the company called
along the category lines). The reorgani- zation did not abolish
brand managers, but it did make them accountable to a new corps of
mini-general managers who were responsible for an entire product
lineall laundry detergents, for example. By fostering internal
competition among brand managers, the classic brand management
system established strong incentives to excel. It also created
conflicts and inefficiencies as brand managers squabbled over
corporate resources, from ad spending to plant capacity. The system
often meant that not enough thought was given to how brands could
work together. Despite these shortcomings, brand management worked
fine when markets were growing and money was available. But now,
most pack- aged-goods businesses are growing slowly (if at all),
brands are proliferating, the retail trade is accumulating more
clout, and the consumer market is fragmenting. Procter & Gamble
reorganized along SBU lines to cope with this bewildering array of
pressures. Under Procter & Gambles SBU scheme, each of its 39
categories of U.S. busi- nesses, from diapers to cake mixes, is run
by a category manager with direct responsibility. Advertising,
sales, manufacturing, research, engineering, and other disciplines
all report to the category manager. The idea is to devise market-
ing strategies by looking at categories and by fitting brands
together rather than by coming up with competing brand strategies
and then dividing up resources among them. The paragraphs that
follow discuss how Procter & Gambles reor- ganization impacted
select functions. Advertising. Procter & Gamble advertises Tide
as the best detergent for tough dirt. But when the brand manager
for Cheer started making the same claim, Cheers ads were pulled
after the Tide group protested. Now the category manager decides
how to position Tide and Cheer to avoid such conflicts. Budgeting.
Brand managers for Puritan and Crisco oils competed for a share of
the same ad budget. Now a category manager decides when Puritan can
ben- efit from stepped-up ad spending and when Crisco can coast on
its strong market position. Packaging. Brand managers for various
detergents often demanded pack- ages at the same time. Because of
these conflicting demands, managers com- plained that projects were
delayed and nobody got a first-rate job. Now the category manager
decides which brand gets a new package first. Manufacturing. Under
the old system, a minor detergent, such as Dreft, had the same
claim on plant resources as Tideeven if Tide was in the midst of a
big 20 PART 1 Introduction Marketing and the Concept of Planning
and Strategy 19
20. promotion and needed more supplies. Now a manufacturing
staff person who helps to coordinate production reports to the
category manager. The notion behind the SBU concept is that a
companys activities in a marketplace ought to be understood and
segmented strategically so that resources can be allo- cated for
competitive advantage. That is, a company ought to be able to
answer three questions: What business am I in? Who is my
competition? What is my posi- tion relative to that competition?
Getting an adequate answer to the first question is often
difficult. (Answers to the other two questions can be relatively
easy.) In addition, identifying SBUs is enormously difficult in
organizations that share resources (e.g., research and development
or sales). There is no simple, definitive methodology for isolating
SBUs. Although the criteria for designating SBUs are clear-cut,
their application is judgmental and problematic. For example, in
certain situations, real advantages can accrue to businesses
sharing resources at the research and development, manufacturing,
or distribution level. If autonomy and accountability are pursued
as ends in them- selves, these advantages may be overlooked or
unnecessarily sacrificed. SUMMARY This chapter focused on the
concepts of planning and strategy. Planning is the ongoing
management process of choosing the objectives to be achieved during
a certain period, setting up a plan of action, and maintaining
continuous surveil- lance of results so as to make regular
evaluations and, if necessary, to modify the objectives and plan of
action. Also described were the requisites for successful planning,
the time frame for initiating planning activities, and various
philoso- phies of planning (i.e., satisfying, optimizing, and
adaptivizing). Strategy, the course of action selected from
possible alternatives as the optimum way to attain objectives,
should be consistent with current policies and viewed in light of
antic- ipated competitive actions. The concept of strategic
planning was also examined. Most large companies have made
significant progress in the last 10 or 15 years in improving their
strate- gic planning capabilities. Two levels of strategic planning
were discussed: corpo- rate and business unit level. Corporate
strategic planning is concerned with the management of a firms
portfolio of businesses and with issues of firm-wide impact, such
as resource allocation, cash flow management, government regula-
tion, and capital market access. Business strategy focuses more
narrowly on the SBU level and involves the design of plans of
action and objectives based on analysis of both internal and
external factors that affect each business units per- formance. An
SBU is defined as a stand-alone business within a corporation that
faces (an) identifiable competitor(s) in a given market. For
strategic planning to be effective and relevant, the CEO must play
a cen- tral role, not simply as the apex of a multilayered planning
effort, but as a strate- gic thinker and corporate culture leader.
CHAPTER 1 Marketing and the Concept of Planning and Strategy 21
Problems in Creating SBUs 20 Marketing and the Concept of Planning
and Strategy
21. DISCUSSION 1. Why is planning significant? QUESTIONS 2. Is
the concept of strategic planning relevant only to profit-making
organiza- tions? Can nonprofit organizations or the federal
government also embrace planning? 3. Planning has always been
considered an important function of management. How is strategic
planning different from traditional planning? 4. What is an SBU?
What criteria may be used to divide businesses into SBUs? 5. What
are the requisites for successful strategic planning? 6.
Differentiate between the planning philosophies of satisfying,
optimizing, and adaptivizing. NOTES 1 Gordon E. Greenley,
Perceptions of Marketing Strategy and Strategic Marketing in UK
Companies, Journal of Strategic Marketing (September 1993): 189210.
2 James Brown, Saul S. Sands, and G. Clark Thompson, The Status of
Long Range Planning, Conference Board Record (September 1966): 11.
3 Business Planning in the Eighties: The New Competitiveness of
American Corporations (New York: Coopers & Lybrand, 1984). 4
Malcolm McDonald, The Marketing Audit: Translating Marketing Theory
Into Practice (Oxford, U.K.: Butterworth-Heinemann, 1991). 5 The
Economist, (March 1997): 65. Also see: Myung-su Chae and John S.
Hill, High Versus Low Formality Marketing Planning in Global
Industries: Determinants and Consequences, Journal of Strategic
Marketing, Vol. 5, No. 1, (March 1997): 322. 6 Strategic Planning,
Business Week, (August 26, 1998): 46. 7 Bryson, J.M. and P.
Bromiley, Critical Factors Affecting the Planning and
Implementation of Major Products, Strategic Management Journal,
(July, 1993): 319338. 8 See Lawrence C. Rhyne, The Relationship of
Strategic Planning to Financial Performance, Strategic Management
Journal (1986): 42336. 9 Perspectives on Corporate Planning
(Boston: Boston Consulting Group, 1968): 48. 10 Russell L. Ackoff,
A Concept of Corporate Planning (New York: John Wiley & Sons,
1970): 13. 11 Henry Mintzberg, The Fall and Rise of Strategic
Planning, Harvard Business Review (JanuaryFebruary 1994): 107. 12
Michael E. Porter, What Is Strategy? Harvard Business Review,
(NovemberDecember, 1996): 6180. 13 Fred Gluck, A Fresh Look at
Strategic Management, Journal of Business Strategy (Fall 1985):
1821. 14 Clayton M. Christensen, Strategy: Learning by Doing,
Harvard Business School, (NovemberDecember, 1997): 141160. 15
Strategic Planning, Business Week, (26 August 1998): 46. 16 William
K. Hall, SBU: Hot New Topic in the Management of Diversification,
Business Horizons (February 1978): 17. 17 The Marketing Revolution
at Procter & Gamble, Business Week (25 July 1988): 72. 22 PART
1 Introduction Marketing and the Concept of Planning and Strategy
21
22. Marketing is merely a civilized form of warfare in which
most battles are won with words, ideas, and disciplined thinking.
ALBERT W. EMERY 23 StrategicMarketing In its strategic role,
marketing focuses on a businesss intentions in a market and the
means and timing of realizing those intentions. The strategic role
of mar- keting is quite different from marketing management, which
deals with develop- ing, implementing, and directing programs to
achieve designated intentions. To clearly differentiate between
marketing management and marketing in its new role, a new
termstrategic marketinghas been coined to represent the latter.
This chapter discusses different aspects of strategic marketing and
examines how it differs from marketing management. Also noted are
the trends pointing to the continued importance of strategic
marketing. The chapter ends with a plan for the rest of the book.
CONCEPT OF STRATEGIC MARKETING Exhibit 2-1 shows the role that the
marketing function plays at different levels in the organization.
At the corporate level, marketing inputs (e.g., competitive
analysis, market dynamics, environmental shifts) are essential for
formulating a corporate strategic plan. Marketing represents the
boundary between the market- place and the company, and knowledge
of current and emerging happenings in the marketplace is extremely
important in any strategic planning exercise. At the other end of
the scale, marketing management deals with the formulation and
implementation of marketing programs to support the perspectives of
strategic marketing, referring to marketing strategy of a
product/market. Marketing strat- egy is developed at the business
unit level. Within a given environment, marketing strategy deals
essentially with the interplay of three forces known as the
strategic three Cs: the customer, the com- petition, and the
corporation. Marketing strategies focus on ways in which the
corporation can differentiate itself effectively from its
competitors, capitalizing on its distinctive strengths to deliver
better value to its customers. A good marketing strategy should be
characterized by (a) a clear market definition; (b) a good match
between corporate strengths and the needs of the market; and (c)
superior per- formance, relative to the competition, in the key
success factors of the business. C H A P T E R T W O 23 2
23. Together, the strategic three Cs form the marketing
strategy triangle (see Exhibit 2-2). All three Cscustomer,
corporation, and competitionare dynamic, living creatures with
their own objectives to pursue. If what the cus- tomer wants does
not match the needs of the corporation, the latters long-term
viability may be at stake. Positive matching of the needs and
objectives of cus- tomer and corporation is required for a lasting
good relationship. But such matching is relative, and if the
competition is able to offer a better match, the corporation will
be at a disadvantage over time. In other words, the matching of
needs between customer and corporation must not only be positive,
it must be better or stronger than the match between the customer
and the competitor. When the corporations approach to the customer
is identical to that of the com- petition, the customer cannot
differentiate between them. The result could be a price war that
may satisfy the customers but not the corporations needs. Marketing
strategy, in terms of these three key constituents, must be defined
as an endeavor by a corporation to differentiate itself positively
from its competi- tors, using its relative corporate strengths to
better satisfy customer needs in a given environmental setting.
Based on the interplay of the strategic three Cs, formation of
marketing strat- egy requires the following three decisions: 1.
Where to compete; that is, it requires a definition of the market
(for example, com- peting across an entire market or in one or more
segments). 2. How to compete; that is, it requires a means for
competing (for example, introduc- ing a new product to meet a
customer need or establishing a new position for an existing
product). 3. When to compete; that is, it requires timing of market
entry (for example, being first in the market or waiting until
primary demand is established). 24 PART 1 Introduction EXHIBIT 2-1
Marketings Role in the Organization Organizational Level Role of
Marketing* Formal Name Corporate Provide customer and competitive
Corporate marketing perspective for corporate strategic planning.
Business unit Assist in the development of stra- Strategic
marketing tegic perspective of the business unit to direct its
future course. Product/market Formulate and implement market-
Marketing management ing programs. *Like marketing, other functions
(finance, research and development, production, accounting, and
personnel) plan their own unique roles at each organizational
level. The business unit strategy emerges from the interaction of
marketing with other disciplines. 24 Strategic Marketing
24. Thus, marketing strategy is the creation of a unique and
valuable position, involving a different set of activities. Thus,
development of marketing strategy requires choosing activities that
are different from rivals. The concept of strategic marketing may
be illustrated with reference to the introduction by Gillette
Company of a new shaving product, Mach 3, in April 1998.1 For some
time, Gillette had faced slow growth in its razors division, partly
because Schick, its smaller rival, had recently launched a new
razor of its own. Investors had begun to fret about slowing growth
and lackluster sales at Gillette. This threatened its basic
business, that is, razor and blades market, in which it had 71% of
the North American and European market. Apparently, Gillette needed
a CHAPTER 2 Strategic Marketing 25 SocialEnv ironm ent Econom ic En
vironment Political/Legal Environment Technologica lEnvironment
Corporation Competition Customer Marketing Strategy: Achieving
maximum positive differentiation over competition in meeting
customer needs EXHIBIT 2-2 Key Elements of Marketing Strategy
Formulation Strategic Marketing 25
25. new marketing strategy to protect its razor and blades
territory. Looking around, Gillette decided to introduce a new
razor that its research laboratory had been developing and that was
ready to be launched. Gillette had an unusual approach to
innovation. Most companies tweaked their offerings in response to
competition or demand. Gillette launched a new product only when it
had made a genuine technical advance. To make the Mach 3, Gillette
had found a way to bond dia- mond-hard carbon to slivers of steel.
The time was on Gillettes side. It needed something revolutionary
to strengthen its market position, and its research labo- ratory
had a unique product ready to be launched. Gillette delineated the
follow- ing marketing strategy: Market (where to compete)Gillette
decided to introduce Mach 3 throughout the U.S. on the same day.
Means (how to compete)Gillette decided to offer Mach 3 as a premium
product that was priced 35% more than SensorExcel, which itself was
60% more expensive than Atra, its predecessor. Gillette reasoned:
People never remember what they used to pay. But they do want to
feel they are getting value for money. Timing (when to
compete)Gillette decided to introduce the new product before its
CEO, Mr. Al Zein, retired. Mr. Zeins ability to communicate had
been a hit on both Wall Street and in the company. Much of the
Gillettes recent success was attributed to Mr. Zein, and the
company wanted Mach 3 to adequately settle in a dominant position
before Mr. Zein retired. Gillettes Mach 3 strategy emerged from a
thorough consideration of the strategic three Cs. First, market
entry was dictated by customers willingness to adopt new products
in the toiletry field. Eight years ago, Gillette was losing its
grip on the razor market to cheap throwaways. Sensor, which
replaced Atra razor, saved the company. The company was hopeful
that the Mach 3 would have a sim- ilar effect. Second, the decision
to enter the market was based on full knowledge of the competition,
which included its own substitute products, such as Sensor and Atra
shavers, as well as companies like Schick. The company was more
con- cerned about its own products competing with Mach 3, and,
therefore it ran down stocks of its Sensor and Atra shavers ahead
of Mach 3s launch. Third, Gillettes strength as an aggressive
successful marketer of packaged goods with its vast experience in
shaving products business and adequate financial resources
(Gillette spent over $750 million in developing Mach 3) properly
equipped it to enter the market. Finally, the environment (in this
case, a trend toward acceptance of technologically advanced
products; Mach 3 was covered by 35 patents) sub- stantiated the
opportunity. This strategy seems to have worked well for Gillette.
In nine months ending 1998, Gillette shaving products sales were up
28%. And yet, the company has to introduce the product in Europe
(with 71% market) as well as in developing coun- tries (Latin
America, where the company has 91% market for blades, and India
with 69% of the market). Inasmuch as Gillette did not tailor its
product to local peculiarities, it was able to achieve vast
economies of scale in manufacturing. The economies of scale were 26
PART 1 Introduction 26 Strategic Marketing
26. mirrored on the distribution side as well. The company
usually broke into new markets with razors and then jumped into
batteries, pens, and toiletries through the established sales
channels. ASPECTS OF STRATEGIC MARKETING Strategic thinking
represents a new perspective in the area of marketing. In this
section we will examine the importance, characteristics, origin,
and future of strategic marketing. Marketing plays a vital role in
the strategic management process of a firm. The experience of
companies well versed in strategic planning indicates that failure
in marketing can block the way to goals established by the
strategic plan. A prime example is provided by Texas Instruments, a
pioneer in developing a system of strategic planning called the OST
system. Marketing negligence forced Texas Instruments to withdraw
from the digital watch business. When the external environment is
stable, a company can successfully ride on its technological lead,
manufacturing efficiency, and financial acumen. As the environment
shifts, how- ever, lack of marketing perspective makes the
best-planned strategies treacher- ous. With the intensification of
competition in the watch business and the loss of uniqueness of the
digital watch, Texas Instruments began to lose ground. Its expe-
rience can be summarized as follows: The lack of marketing skills
certainly was a major factor in the . . . demise of its watch
business. T.I. did not try to understand the consumer, nor would it
listen to the mar- ketplace. They had the engineers attitude.2
Philip Morriss success with Miller Beer illustrates how marketings
elevated strategic status can help in outperforming competitors. If
Philip Morris had accepted the conventional marketing wisdom of the
beer industry by basing its strategy on cost efficiencies of large
breweries and competitive pricing, its Miller Beer subsidiary might
still be in seventh place or lower. Instead, Miller Beer
leapfrogged all competitors but Anheuser-Busch by emphasizing
market and cus- tomer segmentation supported with large advertising
and promotion budgets. A case of true strategic marketing, with the
marketing function playing a crucial role in overall corporate
strategy, Philip Morris relied on its corporate strengths and
exploited its competitors weaknesses to gain a leadership position
in the brewing industry. Indeed, marketing strategy is the most
significant challenge that compa- nies of all types and sizes face.
As a study by Coopers & Lybrand and Yankelovich, Skelly, and
White notes, American corporations are beginning to answer a new
call to strategic marketing, as many of them shift their business
planning priorities more toward strategic marketing and the market
planning function.3 CHAPTER 2 Strategic Marketing 27 Importance of
Strategic Marketing Strategic Marketing 27
27. Strategic marketing holds different perspectives from those
of marketing man- agement. Its salient features are described in
the paragraphs that follow. Emphasis on Long-Term Implications.
Strategic marketing decisions usually have far-reaching
implications. In the words of one marketing strategist, strategic
marketing is a commitment, not an act. For example, a strategic
marketing deci- sion would not be a matter of simply providing an
immediate delivery to a favorite customer but of offering 24-hour
delivery service to all customers. In 1980 the Goodyear Tire
Company made a strategic decision to continue its focus on the tire
business. At a time when other members of the industry were
deemphasizing tires, Goodyear opted for the opposite route. This
decision had wide-ranging implications for the company over the
years. Looking back, Goodyears strategy worked. In the 1990s, it
continues to be a globally dominant force in the tire industry. The
long-term orientation of strategic marketing requires greater
concern for the environment. Environmental changes are more
probable in the long run than in the short run. In other words, in
the short run, one may assume that the envi- ronment will remain
stable, but this assumption is not at all likely in the long run.
Proper monitoring of the environment requires strategic
intelligence inputs. Strategic intelligence differs from
traditional marketing research in requiring much deeper probing.
For example, simply knowing that a competitor has a cost advantage
is not enough. Strategically, one ought to find out how much
flexibil- ity the competitor has in further reducing price.
Corporate Inputs. Strategic marketing decisions require inputs from
three corporate aspects: corporate culture, corporate publics, and
corporate resources. Corporate culture refers to the style, whims,
fancies, traits, taboos, customs, and rituals of top management
that over time have come to be accepted as intrinsic to the
corporation. Corporate publics are the various stakeholders with an
interest in the organization. Customers, employees, vendors,
governments, and society typically constitute an organizations
stakeholders. Corporate resources include the human, financial,
physical, and technological assets/experience of the com- pany.
Corporate inputs set the degree of freedom a marketing strategist
has in deciding which market to enter, which business to divest,
which business to invest in, etc. The use of corporate-wide inputs
in formulating marketing strategy also helps to maximize overall
benefits for the organization. Varying Roles for Different
Products/Markets. Traditionally it has been held that all products
exert effort to maximize profitability. Strategic marketing starts
from the premise that different products have varying roles in the
company. For example, some products may be in the growth stage of
the product life cycle, some in the maturity stage, others in the
introduction stage. Each position in the life cycle requires a
different strategy and affords different expectations. Products in
the growth stage need extra investment; those in the maturity stage
should generate a cash surplus. Although conceptually this
conceptdifferent products serving different purposeshas been
understood for many years, it has been 28 PART 1 Introduction
Characteristics of Strategic Marketing 28 Strategic Marketing
28. articulated for real-world application only in recent
years. The lead in this regard was provided by the Boston
Consulting Group, which developed a portfolio matrix in which
products are positioned on a two-dimensional matrix of market share
and growth rate, both measured on a continuous scale from high to
low. The portfolio matrix essentially has two properties: (a) it
ranks diverse busi- nesses according to uniform criteria, and (b)
it provides a tool to balance a com- panys resources by showing
which businesses are likely to be resource providers and which are
resource users.4 The practice of strategic marketing seeks first to
examine each product/mar- ket before determining its appropriate
role. Further, different products/markets are synergistically
related to maximize total marketing effort. Finally, each prod-
uct/market is paired with a manager who has the proper background
and expe- rience to direct it. Organizational Level. Strategic
marketing is conducted primarily at the business unit level in the
organization. At General Electric, for example, major appliances
are organized into separate business units for which strategy is
sepa- rately formulated. At Gillette Company, strategy for the
Duracell batteries is developed at the batteries business unit
level. Relationship to Finance. Strategic marketing decision making
is closely related to the finance function.5 The importance of
maintaining a close relation- ship between marketing and finance
and, for that matter, with other functional areas of a business is
nothing new. But in recent years, frameworks have been developed
that make it convenient to simultaneously relate marketing to
finance in making strategic decisions.6 Strategic marketing did not
originate systematically. As already noted, the diffi- cult
environment of the early 1970s forced managers to develop strategic
plans for more centralized control of resources. It happened that
these pioneering efforts at strategic planning had a financial
focus. Certainly, it was recognized that market- ing inputs were
required, but they were gathered as needed or were simply assumed.
For example, most strategic planning approaches emphasized cash
flow and return on investment, which of course must be examined in
relation to market share. Perspectives on such marketing matters as
market share, however, were either obtained on an ad hoc basis or
assumed as constant. Consequently, marketing inputs, such as market
share, became the result instead of the cause: a typical conclusion
that was drawn was that market share must be increased to meet cash
flow targets. The financial bias of strategic planning systems
demoted marketing to a necessary but not important role in the
long-term perspective of the corporation. In a few years time, as
strategic planning became more firmly established, corporations
began to realize that there was a missing link in the planning
process. Without properly relating the strategic planning effort to
marketing, the whole process tended to be static.7 Business exists
in a dynamic setting, and by and large, it is only through
marketing inputs that perspectives of changing CHAPTER 2 Strategic
Marketing 29 Origin of Strategic Marketing Strategic Marketing
29
29. social, economic, political, and technological environments
can be brought into the strategic planning process. In brief, while
marketing initially got lost in the emphasis on strategic plan-
ning, currently the role of marketing is better understood and has
emerged in the form of strategic marketing. A variety of factors
point to an increasingly important role for strategic market- ing
in future years.8 First, the battle for market share is
intensifying in many industries as a result of declining growth
rates. Faced with insignificant growth, companies have no choice
but to grasp for new weapons to increase their share, and strategic
marketing can provide extra leverage in share battles. Second,
deregulation in many industries is mandating a move to strategic
marketing. For example, take the case of the airline, trucking,
banking, and telecommunications industries. In the past, with
territories protected and prices regulated, the need for strategic
marketing was limited. With deregulation, it is an entirely
different story. The prospect of Sears, Roebuck and Merrill Lynch
as direct competitors would have been laughable as recently as ten
years ago. Thus, emphasis on strategic marketing is no longer a
matter of choice if these compa- nies are to perform well. Third,
many packaged-goods companies are acquiring companies in hitherto
nonmarketing-oriented industries and are attempting to gain market
share through strategic marketing. For example, apparel makers,
with few exceptions, have traditionally depended on production
excellence to gain competitive advan- tage. But when
marketing-oriented consumer-products companies purchased apparel
companies, the picture changed. General Mills, through marketing
strat- egy, turned Izod (the alligator shirt) into a highly
successful business. Chesebrough-Ponds has done much the same with
Health-Tex, making it the leading marketer of childrens apparel. On
acquiring Columbia Pictures in 1982, the Coca-Cola Company
successfully tested the proposition that it could sell movies like
soft drinks. By using Cokes marketing prowess and a host of innov-
ative financing packages, Columbia emerged as a dominant force in
the motion picture business. It almost doubled its market share
between 1982 and 1987 and increased profits by 20 percent
annually.9 Although in the last few years Izod, Health-Tex, and
Columbia Pictures have been sold, they fetched these marketing
powerhouses huge prices for their efforts in turning them around.
Fourth, shifts in the channel structure of many industries have
posed new problems. Traditional channels of distribution have
become scrambled, and man- ufacturers find themselves using a
mixture of wholesalers, retailers, chains, buy- ing groups, and
even captive outlets. In some cases, distributors and manufacturers
representatives are playing more important roles. In others, buy-
ing groups, chains, and cooperatives are becoming more significant.
Because these groups bring greatly increased sophistication to the
buying process, espe- cially as the computer gives them access to
more and better information, buying clout is being concentrated in
fewer hands. 30 PART 1 Introduction Future of Strategic Marketing
30 Strategic Marketing
30. Fifth, competition from overseas companies operating both
in the United States and abroad is intensifying. More and more
countries around the world are developing the capacity to compete
aggressively in world markets. Business- people in both developed
and developing countries are aware of world market trends and are
confident that they can reach new markets. Eager to improve their
economic conditions and their living standards, they are willing to
learn, adapt, and innovate. Thirty years ago, most American
companies were confident that they could beat foreign competitors
with relative ease. After all, they reasoned, we have the best
technology, the best management skills, and the famous American can
do attitude. Today competition from Europe, Japan, and else- where
is seemingly insurmountable. To cope with worldwide competition,
renewed emphasis on marketing strategy achieves significance.
Sixth, the fragmentation of marketsthe result of higher per capita
incomes and more sophisticated consumersis another factor driving
the increased importance of strategic marketing. In the United
States, for example, the number of segments in the automobile
market increased by one-third, from 18 to 24, dur- ing the period
from 1988 to 1995 (i.e., two subcompact, two compact, two inter-
mediate, four full size, two luxury, three truck, two van, and one
station wagon in 1978 to two minicompact, two subcompact, two
compact, two midsized, two intermediate, two luxury, six truck,
five van, and one station wagon in 1985).10 Many of these segments
remai